On March 15, the National Association of REALTORSⓇ reached an agreement in the Sitzer-Burnett case. This has led to changes in how Realtors negotiate and advertise compensation, in addition to requiring Realtors to have a written agreement with buyers prior to showing homes. The new rules went into effect in August. There’s been a lot of buzz about this in the media but it can be a confusing topic, particularly for those who are unfamiliar with how compensation and representation was established before the settlement.
It’s important to note that commission has always been negotiable. Prior to the settlement, listing agents would advertise a co-broke on the MLS. Co-brokes were the commission offered to a buyer’s agent upon the successful closing of the property. This came from the total commission negotiated between the listing agent and seller in the listing agreement.
With the industry changes, offers of compensation are no longer permitted on the MLS. A seller’s listing agreement will clearly state the fee that their listing agent will receive. Sellers can choose whether or not to offer compensation to buyer’s agents. If they decide to offer buyer broker compensation, this can be advertised outside of MLS-owned platforms, such as on social media or print materials. Listing agents and buyer’s agents can discuss whether the seller is offering compensation.
Another critical change is that Realtors are now required to have a written agreement with buyers before showing properties. These agreements must include:
- The specific, objective amount or rate of compensation that the real estate agent will receive. This cannot be open-ended (e.g., cannot be “buyer broker compensation shall be whatever amount the seller is offering”). It can be a flat rate, a percentage, or an hourly rate.
- A term that prohibits the agent from receiving compensation that exceeds the amount in the buyer agreement.
- A statement that makes it clear that commissions are fully negotiable and not set by law.
- The length of the buyer’s agreements are also fully negotiable. They can be for 1 specific property, for 1 week, 1 month, etc. The agreement must have a start and end date.
Buyers are not required to sign an agreement when speaking with an agent at an open house. If you are an unrepresented buyer who contacts a listing agent directly, you do not need a buyer agreement with the listing agent. They may ask you to sign a document that states you are unrepresented before touring the home or writing an offer. It’s important to understand that if the listing agent solely represents the seller, they do not owe you confidentiality. Anything you discuss with the listing agent can be relayed to the seller.
So, what if you're a buyer who can't afford to pay a Realtor's fee? First, understand that the buyer agreement is a legally binding contract. Your agent is owed compensation when they have completed the duties set forth in the agreement. If you want to request that the seller pays your agent’s fee, this needs to be written into the offer. Sellers can then accept, decline, or counter at a different amount, as with any negotiable contract terms. Make sure you know how much you will be responsible for before moving forward if the seller declines to pay the amount listed on your buyer agreement.
As a seller, why would I agree to pay the buyer's agent? Home prices have skyrocketed since 2020 and median incomes are not keeping pace with housing costs. Many buyers can’t afford agent fees on top of the other upfront purchase costs, such as their down payment, inspections, the appraisal, and closing costs. Offering compensation means a larger buyer pool. Additionally, having all parties represented is in everyone’s best interest. Buyer’s agents help to set realistic expectations with their clients, keep the purchase on track, and manage paperwork and contingencies. This makes for a smoother transaction for all.
For more information, visit www.nar.realtor/the-facts.